The Consumer Financial Protection Bureau’s declaration of dependence

In early February, the Federal Reserve delivered its most significant punishment of a major bank in a generation, sanctioning Wells Fargo for its pattern of customer exploitation.

A few blocks away, meanwhile, another of the giant bank’s regulators, the Consumer Financial Protection Bureau, has recently displayed a different attitude: It has been softening on scandal-inundated Wells Fargo. After an edict about data handling from Mick Mulvaney, the man Donald Trump installed as acting head of the agency late last year, the bureau’s enforcement lawyers suddenly found their hands tied, according to three CFPB staffers. The attorneys weren’t permitted to upload information the bank supplied about its auto insurance business, one of the areas in which Wells Fargo has been accused of malfeasance.

Another probe of bad behavior — this one involving Wells Fargo’s treatment of its checking customers — has bogged down, ProPublica has learned. And a third investigation of the bank (for mortgage abuses) that was about to yield tens of millions of dollars in fines, according to Reuters, now languishes unresolved. Staffers fear they will be ordered to reduce the penalty that Richard Cordray, the previous head of the agency, approved before he left, according to people familiar with the probe.

The CFPB’s multifront retreat comes despite a December tweet from Trump — two weeks after he named Mulvaney to head the agency — in which the president proclaimed that “fines and penalties against Wells Fargo Bank for their bad acts against their customers and others will not be dropped.”

The enforcement slowdown isn’t just good news for Wells Fargo. Mulvaney’s team recently asked enforcement lawyers to prepare for a potential settlement of its lawsuit alleging that Navient, the gigantic student-loan servicer, abused borrowers, according to a high-level CFPB official. Pulling back before the case proceeds to trial would mark a stark reversal in one of previous regime’s marquee legal efforts. And the agency has recently dropped cases against multiple financial institutions it previously accused of harming customers.

In just over two months at the helm of the CFPB, Mulvaney has launched a sweeping set of initiatives. The agency is conducting a comprehensive internal review of enforcement and supervision. Mulvaney ordered a survey of financial firms to get their sense of the “burdens” that the CFPB’s investigative process places on them. He split the fair lending oversight operations in two, putting the heads of the office under his direct control. And he requested a budget of zero dollars, which was something of a gimmick since the bureau has a sufficient reserve, but a statement viewed as symbolic.

This account was drawn from conversations with current and former staffers, as well as numerous press reports. (No current staffers would talk on the record, citing worries about retaliation. Indeed, the bureau’s inspector general has recently launched an investigation into media leaks, into, as one staffer called it “Dumbledore’s Army,” after the secret band of wizards and witches who resist the evil Voldemort in the Harry Potter series.) The CFPB declined to make officials available for interviews or to respond to a lengthy set of questions sent by email.

The story the staffers tell reveals not just a drastic shift in philosophy; it’s an anatomy of a bureaucratic immobilization — one more often accomplished by well-placed monkey wrenches than by a change of laws.

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The CFPB, famous as the brainchild of Sen. Elizabeth Warren, D-Mass., was created as part of the Dodd-Frank reshaping of financial regulation. Until it was conceived after the financial crisis, no single overseer had responsibility to protect people from deceptive fees and predatory loans. But conservatives, along with the financial industry, assailed the agency immediately as unaccountable bureaucrats stomping into realms the government should not tread. Mulvaney, then a congressman, called the agency “a joke… in a sad, sick kind of way.

Now Mulvaney, 50, is in charge. He has made no concession to the notion that he is simply the “acting” director, or to the fact that this isn’t even his full-time job; he also heads the Office of Management and Budget. (Mulvaney spends Tuesdays, Thursdays and Saturdays at the CFPB, according to a high-level official.)

Mulvaney’s first significant move as CFPB chief seemed arcane, and came couched in language about protecting privacy. In early December, he froze the agency’s collection of private financial data, known as “personally identifiable information” or PII. Last year, the bureau’s inspector general issued a report saying the CFPB should handle data more carefully. However, the report was hardly scathing (it didn’t cite any examples of confidential data actually leaking out, for example) and its recommendations were modest and achievable.

Indeed, the report Mulvaney cited did not recommend a freeze on the use of personally identifiable information. For that reason and others, staffers view his ban as a pretext to curtail the bureau’s activities — and an effective one at that. “This is freezing enforcement,” said one CFPB attorney. If enforcement lawyers want to determine whether, say, Wells Fargo is taking advantage of checking account customers, they need to examine the checking accounts — which would include PII.

At first, no one knew the precise contours of the freeze. What could staffers still request? Did it cover only enforcement lawyers, or everybody? Some interpreted the order strictly, concluding they were not only barred from asking or subpoenaing financial institutions for new information but that it covered ongoing matters as well. According to three current CFPB employees, that meant lawyers on the Wells Fargo auto insurance investigation initially were not permitted to upload information the bank had delivered to them. Subsequently, the enforcement team on the matter was granted an exception and is now able to examine the material.

Mulvaney’s order has had effects beyond enforcement, hampering the bureau’s efforts to monitor financial firms for compliance with consumer protection rules and conduct research on financial products, according to several staffers. The freeze has even stymied state attorneys general, according to two CFPB staffers and one attorney for a state office. The bureau is responding more slowly to requests for information and giving less up than it did under the previous administration, according to two people inside the bureau and one lawyer at a state office.

Mulvaney and his appointees initially suggested the freeze was temporary. But on Dec. 22, Mulvaney sent an all-hands missive. After some holiday pleasantries, he wrote, “I’ve decided to continue the hold on the collection of PII and other sensitive data.” With some exceptions, he continued, “the default setting is ‘no.’” The extension surprised few inside the agency. Most staffers now expect it to last the duration of his tenure.

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On Jan. 23, Mulvaney laid out his vision for the agency in a memo to the staff. “When I arrived at CFPB, I told folks that despite what they might have heard, I had no intention of shutting down the Bureau,” he began. He then criticized Cordray for having said “pushing the envelope is a loaded phrase, but that’s absolutely what we did.” But Cordray had never said that. The quote came from another CFPB employee quoted in an article in Politico. A Wall Street Journal op-ed that Mulvaney subsequently published based on the memo required a correction.

Mulvaney explained his philosophy in the memo: “We are government employees. We don’t just work for the government, we work for the people. And that means everyone: those who use credit cards, and those who provide those cards; those who take loans, and those who make them; those who buy cars, and those who sell them. All of those people are part of what makes this country great.”

Many staffers found Mulvaney’s sentiments concerning. “It’s a hell of a document,” said one employee. “I think it very much sets the direction for what he expects us to be doing. I know we are not to push the envelope but it pushes the envelope of ‘Corporations are people, too.’”

When Mulvaney circulated a draft mission statement in early February, staffers noted that it did not specifically mention protecting consumers. Instead, it hailed the notion of “Free, innovative, competitive and transparent consumer finance markets where the rights of all parties are protected by the rule of law and where customers are free to choose the products and services that best fit their individual needs.”

The turnabout in the CFPB’s mission has, unsurprisingly, rankled its previous chief. “We balanced interests as well but when people are cheating consumers, there’s no reason to have fair balance” of the cheaters’ interests with those of their victims, Cordray said in an interview with ProPublica.

CFPB enforcement decisions seem increasingly to be trending in favor of financial institutions. A probe into the breach at Equifax that permitted the records of 143 million people to be exposed has stalled. The CFPB dropped an investigation of World Finance, a subprime lender. The company had donated to Mulvaney when he was a South Carolina congressman. The CFPB said that the decision was made by the enforcement staff, not Mulvaney.

In at least one instance so far, Mulvaney has overruled his staff on an enforcement case. In mid-January, the CFPB voluntarily withdrew a case against four payday lenders. The bureau initially insisted the decision was made by staff attorneys — then confirmed to NPR that Mulvaney was involved. Mulvaney, who received significant contributions from payday lenders, made the decision over objections of the staff, according to a highly placed official within the agency. The official noted that state regulators are often out-gunned when trying to rein in high-cost lenders and need the CFPB’s help. “We spent four years developing this theory,” the official said, “and working really hard and checking our legal basis for it and coordinating with the states.” Then, with no warning and no explanation to the outside world, Mulvaney’s team ordered the bureau to dismiss the case.

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The CFPB was conceived as an independent agency, and under the previous administration, staffers took pains to keep the White House at arm’s length. “We were very careful to avoid aligning ourselves with the Obama White House,” said Elizabeth Corbett, who was acting chief of staff under Cordray. “We would take meetings if asked, but never shared anything we wouldn’t share with Congress.”

Under Mulvaney, by contrast, there’s no pretense that the bureau should be independent. For example, he ordered a report on which of Trump’s executive orders the agency could voluntarily comply with. And Mulvaney himself, of course, is not separate from the White House, given that the other agency he heads, OMB, is part of the executive office of the president.

Many bureau officials said they did not want the place to be politicized — by Republicans or Democrats. “What are we doing to our financial system in name of deregulation?” asked a current official. “When the situation flips, everyone expects people to go back to normal. Is President Liz Warren or President Sherrod Brown going to want their appointees to follow their directives? How are banks going to feel about that? It’s just bad for America.”

The CFPB’s integration into the administration seems most visible in the Navient case. In early December, Mulvaney held a meeting to review the bureau’s major enforcement matters. When the case against student-loan servicer Navient was mentioned, he said, “Oh, this is the big one,” according to a staffer. The comment seemed innocuous, and indeed this was one of the bureau’s biggest cases. The CFPB sued Navient, formerly part of Sallie Mae, in early 2017, accusing the nation’s largest student-loan servicer of cheating borrowers out of their right to lower repayments. Navient says the bureau’s allegations are unfounded.

Some Obama holdovers worried Mulvaney would back away from the case. During a cabinet retreat the first weekend of January, Mulvaney and Education Secretary Betsy DeVos met. Last fall, DeVos announced her department would stop helping the CFPB identify student-loan abusers, and the Education Department has moved to roll back protections for borrowers.

A few days later, Brian Johnson, a senior adviser to Mulvaney, met with Arthur Wayne Johnson, DeVos’ appointee to lead the federal government’s trillion-dollar student-loan operation (and the former head of a private student-loan company). It’s unclear whether the two discussed the Navient case. The Education Department did not respond to a request for comment.

The following week, Eric Blankenstein, one of Mulvaney’s appointees, requested that the enforcement team on the Navient case begin to prepare settlement documents, according to one CFPB official. So far, the enforcement team has not made any decisions on whether to settle, according to people involved in the case, who note that extensive and unsuccessful attempts to settle the case were made before the bureau sued. Staffers said they now fear the bureau’s enforcement team will be ordered to agree to terms that let Navient off lightly.

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When Trump tweeted about Wells Fargo, Cordray said he was almost heartened, suggesting that it “sent a signal they should not back away from enforcing the laws vigorously.” But Mulvaney appears not to be taking Trump’s tweet too seriously.

A potential settlement for alleged Wells Fargo mortgage fee abuses is in limbo. (That scandal was first revealed by ProPublica.) Another investigation, which the agency opened after The New York Times reported that the bank forced more than 800,000 customers to buy auto insurance they did not need, has gone nowhere since Mulvaney took over, according to one person familiar with the probe. The same is true of an early look at whether Wells Fargo has been charging customers who have to maintain a certain level of activity in their checking accounts to avoid fees. Though the customers had complied with the rules, the bank appears to have still charged them, according to a CFPB employee. The investigation is in the early stages and no decisions have been made. Since Mulvaney took over, it has not advanced significantly.

Wells said it is cooperating with regulators but declined to comment on ongoing enforcement matters.

Staffers in the bureau seemed dazed by the rapidity of the changes. But many remain stubbornly hopeful that the young bureau can survive the administration and return to what they view as their mission.

This article originally published in the February 19, 2018 print edition of The Louisiana Weekly newspaper.